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Tax Credits for Puerto Rico

Many Americans are surprised to learn that nearly half of all U.S. households don’t pay federal income taxes, and many of these households receive tax refunds from the IRS.  To followers of federal policy towards Puerto Rico, this statistic carries a certain irony because Puerto Ricans do not pay federal income taxes from Puerto Rico sourced income — but they do not have the same eligibility to receive refundable tax credits as non-Puerto Ricans.

Child Tax Credit

Puerto Rico does have partial access to the Child Tax Credit, the credit that helps parents in the United States. For each child under 17, taxpayers in the States get up to $2,000 shaved off the amount of income tax they owe. Up to $1,400 of the credit is refundable. That means that people who owe no income tax can receive most of the Child Tax Credit in the form of a refund — a check or bank deposit.

The difference between the States and Puerto Rico, when it comes to the Child Tax Credit, is that families in Puerto Rico do not receive this credit for their first or second child. Only third children or additional children beyond the third child are eligible for this credit.

Puerto Rico, with one of the lowest birth rates in the U.S., has very few families with three or more children. Resident Commissioner Jenniffer Gonzalez-Colon reported that only 12% of families can make use of the Child Tax Credit.

Yet the need for this assistance in greater in Puerto Rico than in the States. “Fifty-eight percent are living under the federal rate of poverty, and thirty nine percent living under extreme poverty,” said Gonzalez-Colon.

The Resident Commissioner has re-introduced a bill, co-sponsored by Reps. José Serrano (D-NY), Brian Fitzpatrick (R-PA), and Sean Duffy (R-WI), which would fully extend the Child Tax Credit to all eligible families in Puerto Rico.

Earned Income Tax Credit

The EITC is a credit for all working adults. The federal EITC is for families with low or moderate incomes. People living in Puerto Rico are not able to receive the EITC, even though they pay federal payroll taxes.

Puerto Rico is offering its own local EITC this year, as 29 States have done. It will pay much less than the federal tax credit, but could encourage labor force participation and help to reduce child poverty on the Island. The credit is expected to cost $204,000,000.

Extending the federal EITC to Puerto Rico has been recommended many times.


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